Risk-sensitive portfolio optimization on infinite time horizon |
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Authors: | Kazutaka Kuroda Hideo Nagai |
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Institution: | 1. Actuarial Division 1-2-1 , Daido Life Insurance Company , Edobori, Nishi-Ku, Osaka, 550-0002, Japan;2. Department of Mathematical Science, Graduate School of Engineering Science , Osaka University , Toyonaka, 560-8531, Japan |
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Abstract: | We consider a continuous time portfolio optimization problems on an infinite time horizon for a factor model, recently treated by Bielecki and Pliska "Risk-sensitive dynamic asset management", Appl. Math. Optim. , 39 (1990) 337-360], where the mean returns of individual securities or asset categories are explicitly affected by economic factors. The factors are assumed to be Gaussian processes. We see new features in constructing optimal strategies for risk-sensitive criteria of the portfolio optimization on an infinite time horizon, which are obtained from the solutions of matrix Riccati equations. |
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Keywords: | Portfolio Optimization Risk-sensitive Control Infinite Time Horizon Riccati Equations Bellman Equations Factor Models |
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